2016 Budget: Impact on the Auto Sector: 13 Hits & Misses

The Union Budget 2016-17 was read out yesterday. Obviously there were a lot of announcements, some of which may have brought a smile to your face and the others may have left you red-faced. But how will it affect the auto industry and what recommendations have been made..we will talk about them in this article.

Additional Tax on Passenger Vehicles

An infrastructure cess of 1 per cent on small cars (Petrol, LPG and CNG) will be applied. On diesel cars of this size, this is a harsh 2.5 per cent (engines less than 1,500 cc). For eg: If you buy your favourite i20 diesel (assume price as Rs 7 Lakh), it will get additionally taxed Rs 17,500!

And if there is anything which doesn’t come under the ‘small’ category, it will be taxed an additional 4 per cent. And yes this includes ‘SUVs’ even if they are “small”. This means Honda City costing Rs 9 Lakh will see an increment of a massive Rs 36,000!

A proposal has also been made to collect additional 1 percent tax on purchase of ‘luxury cars’ – which have been defined as cars exceeding Rs 10 lakhs! For eg: If you buy an XUV variant which costs Rs 15 Lakhs, it will get costlier by a whopping Rs 75,000 (Rs 60,000 at 4% + Rs 15,000 at 1%).

In short, each and every car will get costlier – diesels significantly, once the recommendations in the budget are effective. It will also depend on how much will the manufacturers absorb and how much will they pass on to the customer.

Other important pointers

Mr Jaitley, our Union Finance Minister has announced Rs 55,000 crores for building new roads. This figure last year was Rs 70,000. Apart from this, NHAI will be raising an additional Rs 15,000 crores via bonds.

50,000 km of State Highways will be upgraded to the status of National Highways.

The government recognised the need to make passenger traffic more efficient and has set a mid-term goal to abolish ‘permit raj’.

Mr Jaitley also announced that the “Government will enact necessary amendments in the Motor Vehicles Act and open up the road transport sector in the passenger segment.”

The government will also allow private sector to invest in public transport and run buses in various sectors provided they comply with certain safety norms. However, now one will also have to pay service tax on passenger transport.

A new cess of 0.5 per cent has been introduced on all taxable services called the Krishi Kalyan Cess. This will undoubtedly trickle down to the auto industry as well and will be applicable from June 1, 2016.

The custom duty on raw materials used for manufacture of catalytic converters has been reduced from 7.5 per cent to 5 per cent.

All cars, WagonR or Ferrari 488 GTB, will get costlier by a significant margin!

However, basic customs duty on primary aluminium and zinc alloys has been increased from 5 per cent to 7.5 per cent.

The weighted tax deduction on R&D expense has been reduced from 200 per cent to 150 per cent. This will be further reduced to 100 per cent from 2020! This is completely against the idea of Make in India as without indigenous R&D Make in India cannot progress!

The government has also announced Rs 200 crores for FAME scheme and Natrip.

Yes, among a lot of cons there are a handful few pros but for sure, the 2016-17 budget is all set to trouble the auto industry, its sales and YOU – its end consumer!